On January 1, 2019, Pepin Company adopts a compensatory share option plan for its 50 executives....
On January 1, 2019, Pepin Company adopts a compensatory share option plan for its 50 executives. The plan allows each executive to purchase 200 shares of its $2 par common stock for $30 per share after completing a 3-year service period. Pepin estimates the value of each option to be $14 on the grant date, and the company expects that 15% of the options will be forfeited and uses this rate in its compensation cost calculations in 2019. At the end of 2021, Pepin determined that the actual turnover was 7 executives for the entire service period. On January 6, 2022, 8 executives exercise their options.
Required:
| 1. | Prepare a schedule of Pepin’s compensation computations for its compensatory share option plan for 2019 through 2021. |
| 2. | Prepare Pepin’s journal entries for 2019 through 2022 in regard to this plan. |
Homework Answers
Part 1
|
2019 |
2020 |
2021 |
|
|
Estimated (Actual) Compensation Cost |
119000 |
119000 |
120400 |
|
Fraction of service period expired |
1/3 |
2/3 |
3/3 |
|
Estimated compensation to date |
39667 |
79333 |
120400 |
|
Previously recognized compensation |
0 |
(39667) |
(79333) |
|
Current compensation expense |
39667 |
39666 |
41067 |
Estimated comp cost 2019 & 2020 = $14 x 50 executives x (100% - 15%) x 200 = $119,000
Estimated comp cost 2021 = $14 x (50 executives – 7 executives) x 200 = 120,400
Part 2
|
Date |
Account titles and explanation |
Debit |
Credit |
|
12/31/2019 |
Compensation expense |
39667 |
|
|
Paid-in capital from share options |
39667 |
||
|
12/31/2020 |
Compensation expense |
39666 |
|
|
Paid-in capital from share options |
39666 |
||
|
12/31/2022 |
Compensation expense |
41067 |
|
|
Paid-in capital from share options |
41067 |
||
|
1/6/2023 |
Cash (8*200*30) |
48000 |
|
|
Paid-in capital from share options (8*200*14) |
22400 |
||
|
Common Stock (8*200*2) |
3200 |
||
|
Paid in capital in excess of par- common stock (balancing figure) |
67200 |
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